President Donald Trump's decision to impose tariffs on foreign steel and aluminum likely precedes an exit from NAFTA, according to Goldman Sachs.

The bank's chief economist noted that while a formal decision has yet to be announced, a 25 percent tax on steel and a 10 percent tax on aluminum would be the most substantial trade restrictions to date.

"Unlike routine antidumping and countervailing duty cases or less common safeguard cases, the Section 232 authority the President will apparently use is rarely used and more controversial," wrote Jan Hatzius, chief economist at Goldman Sachs. "There is a good chance that this could eventually lead the President to announce he intends to withdraw from NAFTA, but such an announcement does not appear likely in the near term."

Hatzius added the tariff proposal "does not rely on any economic argument and instead imposes trade restrictions on national security grounds."

The economist was referring to the Commerce Department's use of Section 232 of the 1962 Trade Expansion Act in making its recommendation for tariffs. Department leaders contend that the dumping of cheap steel and aluminum from China and other countries puts U.S. competitors out of business, risking national security.

According to the U.S. Department of Commerce, Canada and Brazil – two key trading allies – were the top sources of foreign steel to the U.S. as of September 2017. China, frequently criticized politically for dumping cheap steel on trade partners, is not one of the top 10 sources of steel to the U.S.

Source: IHS Global Trade Atlas, US Department of Commerce

Wall Street appeared to agree with Goldman's assessment, as the Dow Jones industrial average dropped nearly 300 points in early trading Friday morning.